November 7, 1995 E.C.B. No. 37/92/100 & 38/92/100 (57 L.C.R. 271)

 

Between: K.J. Levant Ltd. (37/92)
Cross-Country Holdings Ltd. (38/92)
Claimants
And: Her Majesty The Queen in Right of the Province of British Columbia
as represented by the Minister of Transportation and Highways
Respondent
Before: Robert W. Shorthouse, Chair
Appearances: Ralph A. May, for the Claimants
Alan V. W. Hincks, for the Respondent

 

1. APPLICATION

The claimants held registered leasehold interests in a service station property in Osoyoos, British Columbia acquired by the respondent for highway purposes. The claimant K.J. Levant Ltd. was the lessee under a lease agreement with Matthew Paul Dumont, the registered owner of the property. The claimant Cross-Country Holdings Ltd. was the sublessee under a sublease agreement with K.J. Levant Ltd. affecting a portion of the property covered by the head lease. On October 18, 1991, they entered into separate agreements to transfer their respective interests to the respondent pursuant to s. 3 of the Expropriation Act, S.B.C. 1987, c. 23 (the "Act"). Those two agreements fixed September 30, 1991 as the date of possession by the respondent and further provided that compensation would be determined by the Expropriation Compensation Board (the "board"). On March 5, 1992, each of the claimants filed with the board an application for determination of compensation, alleging various heads of business loss and disturbance damages. On June 28, 1992, the respondent filed a reply to each claimant's application.

At this juncture both claimants have applied to the board for orders consolidating their claims at hearing and determining, in advance of the compensation hearing, that the head lease between Matthew Paul Dumont and K.J. Levant Ltd. was renewed for a five year term commencing May 1, 1991 at the adjusted rental provided for under the lease. Their applications are supported by an affidavit of Mr. Keray Levant, the director and president of K.J. Levant Ltd. In reply the respondent has filed an affidavit of Mr. Fred Menu, acting manager of property services for the respondent in Kamloops, British Columbia. Exercising the powers and jurisdiction of the board under the Act, I heard these applications by teleconference on October 30, 1995.

 

2. THE MOTIONS FOR CONSOLIDATION

Section 11 of the board's Practice and Procedure Regulation, B.C. Reg. 452/87 (the "Practice Regulation") provides as follows:

11. Where 2 or more applications to determine compensation have a common question of law or fact or arise out of the same expropriation or series of expropriations, the board may order that the applications be heard simultaneously or consecutively.

In support of their motions for consolidation, the claimants point out that their respective claims arise out of s. 3 agreements with the respondent concluded on the same date and affecting the same property, that the valuation issues and the questions around lease renewal are substantially identical, and that the prosecution of the claims at hearing will involve largely the same evidence. Both claimants are represented by the same counsel. Consolidation of the claims, they say, will result in savings of time and cost. The respondent does not object to the order sought.

The Practice Regulation does not expressly confer on the board the jurisdiction to order a "consolidation" of claims as that term is used in Rule 5 (8) of the Supreme Court Rules. However, I am satisfied that, in these circumstances, the claims ought to be heard together, with the effect that, although the separate identity of each claim is not destroyed, evidence received in one claim will become evidence in the other and a single set of reasons for decision may follow. Accordingly, I construe the request for an order for consolidation as a request made under s. 11 of the Practice Regulation. I order that the separate claims of K.J. Levant Ltd. and Cross-Country Holdings Ltd. be heard simultaneously or consecutively, leaving it to counsel to work out the details of how they wish to proceed in adducing their evidence, and subject to any further direction by the panel of the board hearing the compensation claims.

 

3. THE MOTIONS FOR DETERMINATION OF LEASE RENEWAL

3.1 Background

Attached as an exhibit to the affidavit of Keray Levant is a copy of an executed lease document between Matthew Paul Dumont as lessor and K.J. Levant Ltd. as lessee. It is dated for reference June 27, 1986 but not formally executed until September 30, 1989 and not registered in the land title office until September 27, 1990. The lease provides for a term of five years computed from May 1, 1986. Rent is fixed at a specified amount for the first year of the term with an annual cost of living adjustment thereafter.

Relevant to this application is a renewal clause in the lease which provides as follows:

"C RENEWAL OF LEASE

And the Lessor covenants with the Lessee that if the Lessee duly and regularly pays the rent herein provided for and performs all its covenants herein contained, the Lessor will, upon the request of the Lessee in writing mailed to the Lessor at least three (3) months prior to the expiration of the term hereby granted, grant to the Lessee a renewal Lease of the said premises for a further term of five (5) years at a rental to be mutually agreed upon or, failing such agreement, to be determined by arbitration as hereinafter provided and otherwise subject to the same covenants, provisos and agreements as are herein contained other than this provision for renewal; provided that the rental for such renewal shall not in any event be less than the rent paid pursuant to Paragraph 2 hereof."

The lease also gives the lessee a right of first refusal to purchase the property and specifies that the right will continue during any renewal term. Notably, there is no overholding clause in the lease allowing the lessee to continue in occupation at the end of the term while negotiations for a new lease proceed.

K.J. Levant Ltd. sold the business which it was conducting from the property to Cross-Country Holdings Ltd. on October 1, 1989. From that date those parties entered into a sublease of the commercial buildings situated on the property for a period of 19 months coincident with the term remaining under the head lease. Like the head lease, the sublease was registered on title to the property in the land title office on September 27, 1990. The sublease provided for payments of both rents and royalties. It also contained a renewal clause. The relevant portions provided that, if K.J. Levant Ltd. renewed its head lease with Matthew Paul Dumont, then on specified terms and conditions Cross-Country Holdings Ltd. would also have an option to renew for whatever renewal term those parties had negotiated under the head lease.

It is an undisputed fact that on June 12, 1990, the parties met to discuss renewal of the head lease. Present at that meeting was the lessor Matthew Paul Dumont and his brother Jim Dumont, Keray Levant on behalf of the lessee K.J. Levant Ltd., and Paul Dumoret on behalf of the sublessee Cross-Country Holdings Ltd. What transpired at that meeting is, however, a matter of some disagreement.

Keray Levant in his affidavit filed on behalf of the claimants deposes that the lessor and lessee agreed at that time to a renewal of the head lease for a further five year period from May 1, 1991 in accordance with the renewal contained in paragraph C of the head lease, and further agreed that the same cost of living rental adjustment would apply during the renewal term.

Fred Menu in his affidavit filed on behalf of the respondent exhibits copies of two letters from Mr. Reinhard Burke, the solicitor acting for Matthew Paul Dumont, as well as a copy of an affidavit of Mr. Dumont himself. In a letter to K.J. Levant Ltd. dated June 14, 1991, Mr. Burke confirms on behalf of his client that the renewal term was not exercised in the time provided for under the head lease and that the term of the tenancy has become year to year expiring April 30, 1992. Mr. Burke confirms his client's position in a letter to the respondent dated July 10, 1991, in which he states: "Simply put, the lease was never renewed either in a formal way or in an informal way." Mr. Dumont's affidavit was sworn on March 30, 1993. Its two concluding paragraphs depose as follows:

"9. On June 12, 1990, four years into the term of the Lease, I met with Kerry [sic] Levant on behalf of K.J. Levant Ltd., at which time we discussed renewal of the Lease for a further five year term.

10. But for the expropriation, I would very likely have renewed the Lease for a further five year term from May 1, 1991, to April 30, 1996, and very likely for further terms thereafter."

Whatever oral understandings, if any, the parties to the head lease may have reached, it is undisputed that at no time prior to the expiration of the term did K.J. Levant Ltd. provide written notice to Matthew Paul Dumont that it was exercising its right of renewal under the lease.

3.2 Issue

Is the evidence sufficient to support a finding by the board that K.J. Levant Ltd. exercised its option to renew the head lease from Matthew Paul Dumont and to determine that the lease was renewed for a five year term from May 1, 1991 at the rental adjustment contained in the lease?

3.3 Positions of the Parties

The claimants submit that I should accept Keray Levant's affidavit evidence that the parties to the head lease agreed to its renewal during the meeting of June 12, 1990. They point out that the respondent made no application to cross-examine Mr. Levant on his affidavit and its content stands uncontradicted by any other sworn evidence. In their submission, Mr. Burke's letters ought to be discounted as evidence on the question of renewal; they merely advance bargaining positions on behalf of his client. Similarly, they say, Mr. Dumont's affidavit, which acknowledges that the meeting of June 12 took place but does not say whether any agreement was reached, was sworn in the context of on-going litigation with the respondent where the deponent had to be careful as to what he was admitting. Despite the requirement for notice to be in writing in the head lease document, the claimants contend that an oral exercise of the option to renew was sufficient in the circumstances.

The respondent casts itself in the role of an interested bystander on this application. Clearly, the respondent was not represented at the meeting of June 12 and has no independent knowledge of what took place. However, the respondent says, the issue on this application is essentially an evidentiary one and the evidence on oral renewal of the lease is contradictory or at any rate insufficient. No evidence has been adduced from two of the participants in the meeting of June 12 -- Jim Dumont and Paul Dumoret -- although unsuccessful attempts have been made by the respondent to contact Jim Dumont. On that basis alone the respondent submits that I should deny the claimants' application. Moreover, in the respondent's submission, the clause in the lease requiring written notice of exercise of the option to renew was not satisfied in this instance. While acknowledging that decided cases in recent years have broadened the legal principles which govern the interpretation of commercial leases, the respondent argues that notification in writing was nonetheless a mandatory precondition to renewal of this lease.

3.4 Discussion and Analysis

The question of whether a particular commercial lease has been renewed is an important one in the context of expropriation law because, to some degree at least, a determination of business losses and other disturbance damages depends upon the length of its enforceable term. Section 38 of the Act addresses disturbance damages for lessees as follows:

38. Where land that is subject to a lease having a term greater than one year is expropriated, the lessee, whether or not he is an occupant of the land, is entitled to reasonable disturbance damages in an amount to be determined by the board by having regard to
(a) the length of the term of the lease,
(b) the length of the unexpired term of the lease,
(c) any rights to renew or the reasonable prospect of renewal,
(d) the nature of the business, if any, carried out on the land under the lease, and
(e) the extent of the lessee's investment in the land that he cannot reasonably recover.

It will simplify matters for those who must perform their valuations in preparation for a compensation hearing to know in this instance whether they are dealing with a lease which as of September 30, 1991 had already expired, or which had an unexpired term of only 9 months or, as the claimants contend, some 4 years and 9 months. It is also germane to those who must assess any rights to renew or the reasonable prospect of renewal at the date of transfer to know whether there was a subsisting lease in place. An application made in advance of the compensation hearing to determine the status of the lease is therefore efficient and possibly cost-saving, provided the evidence proves sufficient to make the determination sought.

In this instance I am faced with a lease the initial term of which expired on April 30, 1991, a full five months before the agreed date of transfer, although the lessee and sublessee continued in occupation or possession thereafter. I am asked by the claimants to conclude that I may ignore a clause in the lease which clearly requires any notice of renewal to be in writing. I am further asked to accept solely on the basis of an affidavit of the principal of one of the claimants that an oral agreement was reached between lessor and lessee, nearly a year before the expiration of the initial term, to renew the lease for a further five years using the same rental adjustment formula as before.

The absence of written notice with respect to renewal of a lease which had a term greater than three years would appear to me, initially, to raise concerns under the Law and Equity Act, R.S.B.C. 1979, c. 224. Section 54 (3) of that statute provides:

54. (3) A contract respecting land or a disposition of land is not enforceable unless
(a) there is, in writing signed by the party to be charged or by his agent, an indication that it has been made and a reasonable indication of the subject matter,
(b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or
(c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed his position that an inequitable result, having regard to both parties' interests, can be avoided only by enforcing the contract or disposition.

Neither counsel really canvassed the applicability of this provision, Mr. May for the claimants simply maintaining that the matter before me lay outside its scope and that the provision (a restatement of the old Statute of Frauds) could not be invoked in circumstances where failure to give effect to an oral agreement would itself perpetrate a fraud.

The parties focused their arguments instead upon what effect I should give to the requirement for written notice of renewal contained within the lease document. The claimants' contention that I may dispense with that requirement rests upon their position that the lease is to be interpreted in accordance with the ordinary rules of contract law which recognize the enforceability of oral agreements. Claimants' counsel referred me to the judgment in Highway Properties Limited v. Kelly, Douglas and Company Limited, [1971] S.C.R. 562, in support of that proposition. There the Supreme Court of Canada considered whether a lessor was limited to remedies given by the law of property or whether remedies arising out of the law of contract were also available for a wrongful repudiation by a lessee of a lease and the subsequent retaking of possession by the lessor. The Court concluded that contract remedies were available and said at p. 576:

It is no longer sensible to pretend that a commercial lease, such as the one before this Court, is simply a conveyance and not also a contract. It is equally untenable to persist in denying resort to the full armoury of remedies ordinarily available to redress repudiation of covenants, merely because the covenants may be associated with an estate in land.

In Cedar Valley Investments Inc. v. City of Port Moody (1981), 22 R.P.R. 80 (B.C.S.C.), where the issue concerned the interpretation of a covenant against assignment in a lease, Oppal L.J.S.C. (as he then was) considered the foregoing passage from the Highway Properties decision. He said at pp 83-4:

It was recognized in that case that the rules governing leases of real property ought to be reconsidered because they no longer meet the reasonable expectations of commercial enterprises.

The cases cited by the claimants relax somewhat the strictness of the rules governing leases of real property in that they incorporate principles of construction and remedies available under ordinary contract law. However, it requires in my opinion considerable dexterity to move from the position that contract principles apply to a lease to the position that an alleged oral agreement will satisfy a clearly stated requirement for written notice.

Respondent's counsel referred me to the decision of the Supreme Court of British Columbia in Canada Safeway Ltd. v. A. Schiel Construction Ltd. (1993), 34 R.P.R. (2d) 320. One of the issues in that case was whether the lessee's notice of an intention to renew a lease had been served in a manner permissible under the lease. The notice provision in the lease stated, in part:

"… Any notice provided for herein shall be given by registered [mail] or, postage prepaid addressed, if to lessor, to the person to whom the rent is then payable …" [Emphasis added]

The lessee purported to serve notice by fax. The lessor argued that options are "strictly construed" and that the word "shall" was mandatory in that it prescribed the only method of service open to the lessee.

The learned chambers judge disagreed. He referred to the judgment of Lord Denning in Yates Building Co. v. R.J. Pulleyn & Sons (York) Ltd. (1975), [1976] 237 E.G. 183 (C.A.), which set forth the following principle:

If the offeror uses terms insisting that only acceptance in a particular mode is binding, it is mandatory. If he does not insist … it is directory [so long as a mode no less advantageous to the offeror is adopted].

Lord Denning's words were adopted by the Ontario Court of Appeal in Ross v. T. Eaton Co. (1992), 27 R.P.R. (2d) 33, which also observed at p. 41:

… if an offeree wishes to depart from the method of acceptance prescribed … (which is not insisted on as the sole method of acceptance), he … can only do so effectively if the communication is by a method which is not less advantageous to the offeror and the acceptance is actually communicated to the offeror.

In the Canada Safeway Ltd. case, the court concluded that registered mail was not stated to be the only form of notice which was acceptable, that service by fax in this instance constituted actual notice and that no acceptable argument was or could have been advanced that the method of service was "less advantageous" to the lessor.

The lease renewal clause in the present case provides that "the Lessor will, upon the request of the Lessee in writing mailed to the Lessor at least three (3) months prior to the expiration of the term … grant to the Lessee a renewal Lease …". Applying the considerations which informed the decision in Canada Safeway Ltd., I am of the view that the requirement for written notice in the present case was "mandatory" or "binding" in the sense in which those words were used by Lord Denning. This is not a situation where what is at issue is the adequacy of particular forms of service -- registered mail versus fax -- as in Canada Safeway Ltd. In my opinion, the lessor was entitled to insist upon written notice because the only other method of service, that is to say, oral notice, was clearly less advantageous to him. The very issue that is before me on this application demonstrates this to be the case.

On the other hand, it appears to me that the requirements in the renewal clause of the lease amounted to contractual preconditions which the lessor might waive if he so chose. He could grant the lease renewal even if the lessee purported to exercise its option by some method other than written notice and effectively communicated notice of its decision to him. The question which remains is whether there is sufficient evidence on this application to conclude that that is what occurred.

The evidence of renewal is, in my opinion, inconclusive. Weighing in favour of the claimants' application are the following established facts: (1) there was provision for a five-year renewal upon not less than three months' notice; (2) the parties to the lease together with others met to discuss it well before the time prescribed had elapsed; (3) no written notice of renewal was ever provided; (4) there was no overholding clause in the lease; and (5) subsequent to the expiration of the initial term, the lessee and sublessee nevertheless remained in occupation or possession of the leased premises for the five additional months preceding the transfer of their interests to the respondent. It might be possible, simply from a review of these facts, to discern a course of conduct pointing to an oral agreement between the parties to renew the lease and a waiver by the lessor of the requirement for written notice.

However, the affidavit material filed on this application creates overriding doubts in my mind as to whether any such renewal agreement was reached. Keray Levant's recent affidavit deposes that it was. Matthew Paul Dumont in a 1993 affidavit deposes only that renewal was discussed and that, but for the expropriation (five months after the initial term of the lease expired), he would very likely have renewed the lease. The only sensible construction which can be put on Mr. Dumont's latter statement is that he had not actually done so. Mr. Burke's letters are, of course, not sworn statements but they do set out his client's position in mid-1991 as to renewal which is in contradiction to the position taken by the claimants.

3.5 Conclusion

From my review of the case authority provided, I would stop short of saying that, as a matter of law, K.J. Levant Ltd. has not exercised its option to renew the head lease from Matthew Paul Dumont even though it did not comply with the requirement for notice in writing. The issue is, as the respondent says, mainly an evidentiary one. In my view, the evidence on this application is insufficient to support a finding, on a balance of probabilities, that the parties orally agreed to renew the lease for an additional five years. Accordingly, the claimants' requests for an order determining that the lease was renewed is dismissed. In so deciding I do not, however, preclude the parties from adducing additional evidence bearing on this matter, either upon a further interlocutory application or at the compensation hearing itself.

 

 

Government of British Columbia